Salary payment by invoice
How NETO pays you a real payslip while your client is billed by invoice · no business file needed.
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US citizens & Green Card holders in Israel
US Citizens in Israel · Legally Reduce Your 15.3% Self-Employment Tax
Freelancing from Israel as an American means roughly 15.3% US Self-Employment Tax on top of Israeli deductions. Work through NETO as an Israeli employee and your earnings become wage income · not self-employment income · so US SE Tax generally does not apply.
Licensed manpower contractor 1565 · verify
Compliant Israeli payslip · NII & pension
5% commission · operating since 2016
What US Self-Employment Tax costs · and how NETO changes the picture
US citizens and Green Card holders stay liable for US tax on worldwide income no matter where they live. If you freelance from Israel and report that income as self-employed, you generally owe US Self-Employment (SE) Tax · about 15.3% (12.4% Social Security plus 2.9% Medicare) · on top of your Israeli deductions. Working through NETO as an Israeli employee turns those earnings into wage income rather than self-employment income, and SE Tax applies to net earnings from self-employment · not to wages.
✦ AI Summary US citizens in Israel · Self-Employment Tax, in brief Tap to open Click to read the page summary
US citizens living in Israel who work as self-employed freelancers generally pay 15.3% US Self-Employment Tax (12.4% Social Security + 2.9% Medicare) on their net earnings · roughly a $7,650 hit on $50,000 of income · in addition to Israeli National Insurance (Bituach Leumi). By working through NETO as an Israeli employee (you receive a real payslip, a tlush sachar, with NII and pension paid on your wages), your earnings are reported to the IRS as wage income rather than self-employment income. SE Tax applies to self-employment earnings, so wages from a foreign employer are generally outside its scope. NETO holds Israeli Manpower Contractor Licence #1565, charges a 5% commission, and handles payroll, National Insurance, pension and severance compliance. This is a clean, legal structure · but US tax law is individual, so confirm your case with a US-licensed CPA before changing how you file.
The problem
What US Self-Employment Tax is
A quick, plain-English picture of why American freelancers abroad feel the squeeze.
Roughly 15.3% on net earnings
US SE Tax funds Social Security (12.4%) and Medicare (2.9%). It applies to net earnings from self-employment · the profit a freelancer, sole proprietor or single-member LLC reports on Schedule C and Schedule SE. See the IRS Self-Employment Tax guide.
It follows US citizens abroad
US citizens and Green Card holders are taxed on worldwide income wherever they live. The Foreign Earned Income Exclusion (FEIE) can reduce US income tax, but it does not remove SE Tax · so a freelancer in Israel can still owe the full 15.3% on their profit.
No US-Israel totalization agreement
The US has no Social Security totalization agreement with Israel, so there is no treaty that simply cancels the SE Tax for a self-employed person. This makes the employment structure · employee versus self-employed · the practical lever, as the SSA US-Israel page describes.
Israeli deductions come on top
As an Israeli self-employed person ("עצמאי") you also pay Bituach Leumi and health tax yourself, keep a Tik Osek, and usually pay for a local CPA · stacked on top of the US SE Tax bill.
The NETO alternative
Employee income · not self-employment income
The mechanism is simple. SE Tax is charged on net earnings from self-employment. Wages are not self-employment income · so the structure you work under decides whether SE Tax applies.
Without NETO · self-employed
You issue invoices as a freelancer ("עצמאי") and report the profit to the IRS on Schedule C. That profit is net earnings from self-employment, so you generally owe the full 15.3% SE Tax · plus you self-pay Israeli Bituach Leumi and keep a Tik Osek.
With NETO · employee payslip
NETO is your Israeli employer of record. You receive a tlush sachar (Israeli payslip) with National Insurance and pension paid on your wages, and you report the income to the IRS as wages on Form 1040 · not on Schedule C or Schedule SE. Wage income is generally outside the scope of SE Tax.
When you work through NETO the structure is unambiguous: your foreign client pays NETO, NETO issues a compliant English invoice, and NETO pays you a proper Israeli payslip after Israeli payroll deductions. Because the earnings reach you as wages from an employer rather than as self-employment profit, US Self-Employment Tax generally does not apply to them.
Important: US tax law is individual and details matter (dual citizens, Green Card holders, US LLCs, multi-source income). This page explains the general structure · it is not tax advice. Confirm your specific case with a US-licensed CPA who handles expat returns before you change how you file.
Real numbers
The 15.3% tax math
What SE Tax looks like at different income levels · as a self-employed freelancer versus as a NETO employee whose earnings are wage income.
| Net annual income | SE Tax as freelancer | SE Tax as NETO employee | Annual difference |
|---|---|---|---|
| $30,000 | $4,590 | $0 | $4,590 |
| $50,000 | $7,650 | $0 | $7,650 |
| $80,000 | $12,240 | $0 | $12,240 |
| $120,000 | $15,772 (near cap) | $0 | $15,772 |
Figures reflect the combined 15.3% SE Tax: 12.4% Social Security (applied up to the annual wage base · about $168,600 in 2024) plus 2.9% Medicare (no cap, with an added 0.9% Additional Medicare Tax on wages above $200,000 for single filers). These are illustrative amounts on net earnings, before the deductible-portion adjustment for income tax. Your own result depends on income, filing status and year · verify with a US CPA.
How it works
How to switch · 4 practical steps
Moving from freelance invoicing to a NETO payslip takes minutes, not weeks.
1
Register at NETOSign up online in about 5 minutes and choose the freelancer / employee track.
2
Your client pays NETONETO issues an English tax invoice to your foreign client (USD, EUR, GBP or ILS) with 0% VAT for export of services.
3
NETO pays your payslipYou receive a tlush sachar in ILS after Israeli payroll deductions (income tax, National Insurance, health tax, pension if requested). NETO commission is 5%.
4
You report as wagesReport the income to the IRS as wages on Form 1040 · not Schedule C, no Schedule SE. Claim the Foreign Tax Credit (Form 1116) for Israeli tax paid, as your CPA advises.
CPA verification: The employee-versus-self-employed distinction is well established, but your filing may have nuances. Before changing your structure, confirm with a US-licensed CPA who handles expat returns (Israel desk).
Side by side
Israeli freelancer vs NETO employee
The same work, two structures. Here is how they compare for a US citizen based in Israel.
| Aspect | Israeli freelancer ("עצמאי") | NETO employee |
|---|---|---|
| US SE Tax | ~15.3% on net earnings | Generally none · wage income |
| Israeli National Insurance | Self-paid on income | Auto-deducted from the payslip |
| Israeli tax file | Required (Tik Osek) | Not required · NETO handles it |
| Israeli CPA | Usually required | Not required |
| Pension / severance | Optional, self-managed | Automatic, under Israeli law |
| VAT on foreign clients | 0% (export of services) | Handled by NETO |
| Time to set up | Weeks (Tax Authority + Bituach Leumi) | About 5 minutes online |
| NETO commission | N/A | 5% on transactions |
Watch · how freelancers get paid through NETO
Two minutes that show exactly how it works · from signup to getting paid. Feel free to send it to your client too · it explains the arrangement without long emails.
FAQ
Frequently asked questions
Does this work for Green Card holders too?
Generally yes. US SE Tax and the wage-versus-self-employment distinction apply to anyone subject to US tax on worldwide income, which includes Green Card holders. As a NETO employee your earnings are wage income rather than self-employment income. Confirm your specific case with a US CPA.
Will my Israeli income tax be higher as an employee?
Israeli employee income-tax brackets are broadly similar to · often slightly lower than · self-employed brackets on the same income, after standard credits (Nekudot Zikui). Most US citizens see a neutral or favorable Israeli outcome, while removing the roughly 15.3% US SE Tax on the wage side. Your result depends on your circumstances · verify with a US-licensed CPA.
Is there a US-Israel totalization agreement I can rely on?
No. The US has no Social Security totalization agreement with Israel, so there is no treaty that simply cancels SE Tax for a self-employed person. That is exactly why the employment structure matters: as a wage employee of NETO, the income is not self-employment income, so SE Tax generally does not reach it.
Do I lose US Social Security credits?
Because there is no totalization agreement, Israeli Bituach Leumi credits are not combined toward US Social Security eligibility. Whether you keep accruing US credits depends on your situation. For most people planning to stay in Israel long-term the Israeli pension system is the more relevant retirement vehicle · but check with a US CPA or the SSA.
What if I have a US LLC?
A single-member LLC is usually a disregarded entity for US tax, so its income is treated like direct freelance income · same SE Tax exposure. The NETO structure still applies: you become NETO's Israeli employee instead of contracting through the LLC. Multi-member LLCs and S-corp elections need a CPA review.
Can my US client pay NETO directly?
Yes. NETO issues a proper English invoice (USD or other currency, with a 0% VAT line for export of services). Your client pays NETO, and NETO pays you on an Israeli payslip after handling the Israeli payroll obligations.
Is NETO actually licensed · and does this count as tax advice?
NETO operates under Israeli Manpower Contractor Licence #1565 from the Ministry of Labor, which you can verify on gov.il using company registration 515486058. This page explains a general structure and is not US tax advice · always confirm your filing with a US-licensed CPA.
Stop paying SE Tax you may not owe
Switch from freelance invoicing to a NETO Israeli payslip. Licensed manpower contractor 1565 · 5% commission · set up in about 5 minutes. Then confirm your filing with a US CPA.
Prefer to talk? Call support · 08-976-1874
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Related guides
Keep reading about getting paid from Israel the compliant way.
Freelancer vs self-employed
The difference between working as an employee-style freelancer and opening an Osek in Israel.
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Read moreEmployer of Record Israel
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Compliant monthly payroll · payslips, National Insurance and pension calculated correctly.
Read moreIssue a one-time invoice
Bill a single client once and get paid on a payslip · without opening a business.
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How it works at NETO
The law requires 6% · at NETO it is 8.33%
6%The employer's duty under the extension order
8.33%What NETO actually contributes
The mandatory pension extension order obliges every employer to contribute 6% of salary to the severance component, and section 14 of the Severance Pay Law applies to that money automatically. NETO contributes the full severance component by default · 8.33% · so the ongoing contribution replaces severance pay in full and no top-up is due when the employment ends. An employer contributing less than 8.33% must top up severance at the end of the employment relationship.
The one exception
Section 14 and the sources in the labour law centre →
A worker who declares they have no active pension fund, in a one-off engagement · there the contribution obligation begins only after six months of work. A worker with an active pension arrangement is entitled from day one, with contributions made retroactively after three months or at the end of the tax year, whichever is earlier.
General information · not legal advice. The binding text is the statute and the extension order themselves.
